A commonly acknowledged problem in running a business is that the more that is produced, the lower the quality due to an increasing amount of errors committed. This quality-quantity tradeoff is widely thought to be worsened by incentive payments, which typically, it is said, reward quantity but overlook quality.
In a field experiment, John S. Heywood, W. Stanley Siebert and Xiangdong Wei study the relationship between incentive pay, worker monitoring, worker commitment and the quantity versus quality aspects of worker performance. Participants in the experiments had to manually input data obtained from survey questionnaires. Quantity is measured in terms of 1000’s of words input per day, and quality is measured as the number of mistakes. 60 workers were tracked for a month, and separated randomly into high monitored (50% chance of being checked per day) and low monitored (10% chance) groups. Initially the groups were paid according to a time rate. Then, halfway through the period, the system was changed to a piece rate, with high returns for quantity and at the same time a fine for mistakes. Given the different monitoring probabilities, the expected fine was larger for the highly monitored group. At the same time the workers’ motivations for doing the work were carefully surveyed with the aim of measuring worker “commitment”, e.g., whether they found the task meaningful.
The paper shows that worker monitoring, the piece rate’s high-powered incentives, and worker commitment all influence a worker’s quality-quantity performance. Hence, by choosing appropriate combinations of these variables, many different quality-quantity combinations are available to a firm. The authors show that these different combinations have different costs. For example, high monitoring requires supervisors to be paid, while high worker commitment implies costly worker selection. Nevertheless, the results imply that a firm is far from being bound by a given quality-quantity tradeoff. It can refine its worker selection and monitoring options together with the payment system to deliver a chosen (optimum) quality-quantity mix. Moreover, there is no reason to fear piece rates, provided that these are combined appropriately with worker monitoring. The paper also shows that time rates, for their part, are best combined with careful worker selection policies, and not with strict monitoring, which seems simply to demotivate in this context.